Response to UCL's Provost: time to catch up with the evidence!

While thousands of people involved in this strike have come to understand that the USS valuation that triggered the action is based on a fundamentally faulty methodology, our Provost shows how out of touch he is by simply reproducing the Universities UK position in a direct message to staff. His message fails to respond to the comprehensive debunking this position has very publicly received (see links at end of this blog).

He has taken to issuing direct communications to staff since he faced a staff rebellion last May and this latest one is a testament to how our institutions is under the control of a Senior Management at odds with the staff of UCL and which regularly undermines the learning community that a university should be.

We give our responses to his, strangely badly-researched, points below (taken uncritically from UUK) and supply a reading list with analyses that provide actual evidence and argument showing why the UUK position is deeply, deeply faulty (both substantively and methodologically) - so much so that we believe Vice Chancellor support for it can only be motivated by a wish to divert expenditure elsewhere.

Responses to case put by Michael Arthur (UCL Provost) in his "Provost's View: an update on USS pensions" sen to staff on 26 Feb 2018

MA states

All private pension schemes such as USS are required to carry out a valuation every three years and scheme trustees must be assured that the pension is sustainable. 

UCU responds

We are in favour of valuing the scheme on a sustainable, i.e. long-term stable basis. 

The current valuation is not a "sustainable" model. It starts by assuming that the entire pre-92 sector goes bankrupt! 

It is this assumption - and only this assumption - that justifies a low risk but low-value investment strategy. 

On bankruptcy of the sponsoring employer, a single-employer scheme has to minimise volatility for its investments, and therefore 'de-risks' by selling stocks and shares and buying government bonds and gilts. But USS is a multi-employer scheme with 350 contributing employers. The equivalent scenario is not the bankruptcy of one employer, but the bankruptcy of all employers (or at least a large proportion of the largest ones). 

Nonetheless, since gilt yields are at an historic low (and likely to remain low), and gilts currently expensive, the effect of modelling USS assets as if they were gilts is to massively deflate the future value of assets. 

Not only is this not a sustainable model, it would be an act of significant self-harm for USS were the investment team to decide to actually perform this 'de-risking'. The evidence from the two valuations carried out for UUK last year is that "de-risking" actually increases the chance that the scheme defaults. That is, the valuation model currently preferred by UUK (the "November Technical Provisions") is actually higher-risk to the employers than the previous valuation model (the "September Technical Provisions").

A sustainable valuation of USS was carried out by First Actuarial last year. This demonstrated that in fact the scheme was sustainable for at least 40 years without any changes being made, no additional costs to the employers or employees.


The 2017 valuation has proved to be more difficult than expected as economic conditions have not improved as anticipated since the last set of changes to the scheme.


Let us be specific about the "economic conditions" referred to. They are the long-term predicted low yields of gilts. Only by engaging in modelling assets as if they were gilts does the valuation generate a deficit. But this is a counterfactual assumption. Only 10% of USS assets are currently invested in gilts, whereas 70% are invested in high yield stocks and shares. 

So this statement is true, but irrelevant. It matters not to USS whether gilt yields are low if USS does not invest all its assets in them.


The scheme has a £6.1 billion deficit (if the current proposals are accepted) and there has been an increase of more than a third in the cost of future pensions. To maintain the scheme as is, contributions would have to rise by approximately £1 billion per annum. 


Only if you value the scheme on the counterfactual "self-sufficiency in gilts" basis. This is only justifiable if you anticipate that the entire pre-92 sector were to go bankrupt. If you do not value the scheme on this basis, but on a sustainable ongoing basis, then there is no additional cost to either employer or employee.

A sustainable solution needs to be reached by 30 June 2018 when, by law, the valuation must be completed.
We have a sustainable solution. Stop modelling the scheme as if the pre-92 sector were bankrupt. Value the assets on the basis of the assets they represent, so assets invested in property should be valued on the basis of predicted future property values, value assets invested in manufacturing on that basis, and so on. 

Alternatively, if the UCL Provost thinks the entire pre-92 sector is going to go bankrupt in the next three year valuation cycle, perhaps he should tell staff and students.

Some reading with evidence and argument and a transparent methodology

MA seems to be trying to argue water to go uphill, given the weight of evidence against his position, which is the same as that of UUK. It would seem that he, or his advisors, needs to read more widely.
There is this article in the Independent for example:

With evidence and clear argument there is piece that demonstrates the bizarre assumptions on which the "USS in deficit" claim has been made:

This article has been read over 17, 000 times and is being disseminated far and wide on social media - no evidence has been supplied (and certainly not in the Provost's missive) to dismiss its evidence and argument.

There is also this report from First Actuarial, a pensions expert

We note that the UUK position is not clearly argued, and in fact UUK have refused to make their methodology for their valuation public, revealing what would clearly be the bizarre assumptions that it takes to arrive at their view.

More importantly, wheeling out the UUK standard position without decent evidence, argument, or a counter-response to the excellently researched work that debunks their view simply shows that our Proovost and his Senior Managers are out of touch on where people involved in the strike, and the wider UCL community, are right now - you'd think they had something better to offer in a message to all staff. They don't.

And the Icing on the Cake....

UCL's own Director of Finance admits, undermining the arguments of his own Provost above, that that the valuation based on Gilts is not a necessary or useful way to value the pension scheme. Asked if 'Test 1' is required by the pensions regulator he says no - it was chosen by the trustees (by USS): See video recording of him doing so here: 



  1. UCL has deleted the video of the Pension Town Hall Meeting.
    Is UCL trying to hide their own Director of Finance comments?

    1. PS: don't worry because we have our own video recording - will be up soon.

    2. OK video clip back up!

  2. This comment has been removed by the author.


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